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Jamie Dimon: America’s Least-Hated Banker

Back in 2004, way before the mortgage bust and before Americans thought of banks as four-letter words, Jamie Dimon took charge of JPMorgan Chase & Company. Known as a tough, hands-on manager, Dimon was supposed to avert the sort of foolish risks that tempted so many of his peers. And sure enough, he was different.

Instead of reviewing brief summaries of the bank’s operations, as his predecessor had, Dimon demanded to see the raw data — hundreds of pages detailing J. P. Morgan’s businesses every month. Instead of simply trusting his traders, Dimon put himself through a tutorial, so that he would understand the complex trades the bank was exposed to. And rather than run its mortgage machine at full throttle for as long as possible, Dimon reined in lending earlier than did others and warned his shareholders of looming trouble.

Prudent as they were, his precautions were not enough. Over the last two years, JPMorgan Chase suffered an astonishing $51 billion in faulty mortgages, unpaid credit cards and other bad loans. And Dimon has landed dead center in the controversies that have caused many Americans to lose faith in banking. Chase issued too many faulty mortgages, it was embarrassed by high overdraft fees on debit cards and recently it has admitted to cutting corners in processing home foreclosures. Americans are angry at bankers for helping to bring the financial system to its knees; they are especially angry at those like Dimon whose banks accepted taxpayer investment.

The popular animus has come as a shock to Dimon. Recently, while entertaining a roomful of corporate clients over a tenderloin dinner, he felt the need to assert his and his industry’s worthiness. “I am not embarrassed to be a banker,” he noted. “I am not embarrassed to be in business.” In truth, Dimon has plenty not to be embarrassed about. He fulfilled a banker’s first obligation: he made sure his bank survived. This was thanks to his strategy of maintaining a healthy cushion of capital for a rainy day. When markets melted down and the economy plunged into recession, J. P. Morgan remained not only solvent but profitable every quarter. When other banks were refusing to lend, Dimon’s continued to offer credit to customers ranging from homeowners to Pfizer to the State of California. And when the United States needed a strong institution to bail out a failing bank, it turned — twice — to JPMorgan Chase.

Dimon sees himself as a patriotic citizen who helped his country in a time of crisis. Now the most visible face of Wall Street, he thinks banks and bankers have a role not only in rebuilding the economy but in coming up with remedies for the financial system. Critics say that, as a part — even a solvent part — of a failed system, he should be grateful for the government’s assistance rather than stridently critical, as he has been, of some of its reforms. Dimon, they note, took advantage of the crisis to acquire Bear Stearns and Washington Mutual, and J. P. Morgan emerged from the crisis as a vastly larger institution. That is a cause for alarm to 33 U.S. senators, who voted this spring for an amendment that would have forced big banks to dismantle. The country is deeply divided over the proper role, and the size, of banks, and nothing epitomizes these tensions quite like the narrative of Jamie Dimon.

Over the past few months, Dimon allowed me into his inner sanctum, giving me an insider’s view of how he thinks about banking and how he runs the bank. The executive I encountered was on a mission to reclaim a respected place for his industry, even as he admits that it committed serious mistakes. He was adamant that government officials — he seemed to include President Obama — have been unfairly tarring all bankers indiscriminately. “It’s harmful, it’s unfair and it leads to bad policy,” he told me again and again. It’s a subject that makes him boil, because Dimon’s career has been all about being discriminating — about weighing this or that particular risk, sifting through the merits of this or that loan. Dimon has always been unusually blunt, and he told me that not only are big banks like J. P. Morgan (it has $2 trillion in assets) not too big, but that they should be allowed to grow bigger. This will come as an affront to critics in the Tea Party as well as in Cambridge lecture halls. America’s five biggest banks, including Dimon’s, now control 46 percent of all deposits, up from a mere 12 percent in the early ’90s. Since the financial crisis, a sort of Jacksonian animosity toward big financial institutions has overtaken the public — witness that, in the recent election, no fewer than 200 candidates spent money on ads attacking Wall Street. “Big banks don’t have a lot of friends right now,” says Nancy Bush, an analyst with NAB Research. “Europe loves its big banks. America hates them.”

JPMorgan Chase is a true colossus, the kind that progressives like Louis Brandeis inveighed against early in the previous century. It is America’s biggest credit-card company, the third-ranking mortgage issuer and the biggest in auto loans. In investment banking, it is neck and neck with Goldman Sachs. But neither Goldman nor any other firm can match J. P. Morgan’s breadth or overall strength.

Perhaps a simpler way to think of Dimon’s bank is that it provides diverse forms of financing to people as well as to corporations and also manages their investments. In all, it moves more than a trillion dollars in cash and securities through the system every day. Simon Johnson, a liberal economist at M.I.T., who favors busting up the biggest banks, takes aim at Dimon for “defiantly affirm[ing] that JPMorgan Chase should be allowed to grow bigger.” Set aside, for the moment, fears about “too big to fail”: Johnson writes that behemoths like J. P. Morgan offer no compensating benefits for the added risk of their size; indeed, he sees “no evidence for economies of scale or scope — or other social benefits.”

Dimon not only believes that view is “completely wrong,” but he is pursuing a strategy predicated on the benefits of synergies and economies of scale. “Walk into a Chase branch and we can give you so much quicker, better and faster,” Dimon says, referring to the bank’s array of loans, credit cards and investment products. “Like Wal-Mart. ” It is an intriguing comparison; this is how Dimon wants to be seen — as a retailer with 5,200 branches nationwide whose products happen to be financial services. The reason that J. P. Morgan runs so many disparate businesses, he says, is that they aren’t really disparate. Just as customers in Wal-Mart shop for groceries as well as televisions, people who want credit cards also need mortgages; small businesses that require commercial loans occasionally need an investment banker; and all of the above need a place to put their assets.

Few people think of banks this way, but as Dimon observed in a shareholder letter in 2005, “Twenty years ago, who would have thought [Wal-Mart] would sell lettuce and tomatoes?” As with lettuce, most of the products that banks offer are commodities. (No one cares where they get a loan, as long as it is cheaper.) Dimon sees the front of the store, which lends money, as linked to the back, which deals in securities.﻿ Glass-Steagall, the 1930s law that separated Wall Street from banking, forbade this approach, but it was repealed in the 1990s. Dimon’s biggest quarrel with Dodd-Frank, the financial-reform legislation enacted over the summer, was that it erected new walls. Damon Silvers, policy director for the A.F.L.-C.I.O., said of J. P. Morgan’s lobbying effort, “They fought anything that appeared to resiloize the financial system, such as the Volcker rule,” which will prevent banks from trading with their own capital, “and other kinds of neo-Glass-Steagall things.” Dimon vigorously supported enhanced mortgage regulation but not a separate consumer agency to administer it; he backed more controls on derivatives, but not the aspect of the law that requires banks to set up a new subsidiary for certain types of derivatives. (That and other derivatives reforms could clip $1 billion from J. P. Morgan’s revenues a year.)

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Credit
Marco Grob for The New York Times

Dimon echoes the standard business sentiment that boundaries that create inefficiencies raise costs for the enterprise and, therefore, for customers. Perfectly unfettered, he thinks one bank could gain a 30 percent share of the market. Dimon doesn’t defend monopoly, but he says Americans should view financial mergers as not any scarier than, say, combining Chevrolet and Buick and calling it General Motors. Of course, financial companies are different. G.M.’s assets won’t disappear overnight; during a panic, a bank’s just might, and that could destabilize the financial system. This is why banks are closely regulated. A lot of the focus on preventing panics has centered on the size of banks; Dimon argues that regulating capital levels is more effective. Requiring higher capital puts a brake on how much banks can lend, and therefore earn, but gives them an added cushion to withstand losses.

There are, believe it or not, reasons for wanting banks to be big, including safety. A large bank with many loans is less prone to failure than, say, a bank in Texas that lends to only oil drillers. For related reasons, as a bank gets bigger, its credit will generally be stronger, its borrowing costs lower. But as Dimon points out, banking also suffers from diseconomies of scale, like the lack of attention to detail and the “hubris” that can undermine a large organization. Such sins are precisely what crippled Citigroup and A.I.G. Nonetheless, Dimon insists that for a bank that gets it right, the positives of consolidation are overwhelming. Since J. P. Morgan’s acquisition, in 2008, of Washington Mutual, each Chase branch spends $1 million less on overhead and technology than it did before. “Economies of scale are a good thing,” Dimon stresses, sounding like a buttoned-down version of Sam Walton. “If we didn’t have them, we’d still be living in tents and eating buffalo.”

DIMON GREW UP IN QUEENS, the grandson of a Greek immigrant who rose from bank clerk to stockbroker, a profession also taken up by Jamie’s father. At home, Jamie absorbed a first-generation reverence for America and the stock-market wisdom of Benjamin Graham. (A disclosure: my mother is friendly with Dimon’s parents.) Teddy, his twin, recalls a superconfident sibling who always wanted the ball when the game was on the line. His interest in business took off in college, in part thanks to his father’s boss, Sanford I. Weill, already a legend for having built a brokerage empire. After Harvard Business School, in 1982, Dimon turned down an offer from Goldman Sachs and took the riskier route, going to work as Weill’s assistant at American Express. In 1986, after leaving American Express, Weill gained control of the Commercial Credit Company, a sleepy finance firm catering to middle-class clients — many of them the subprime borrowers of their day — and started rebuilding his empire deal by deal. Under Weill’s tutelage, Dimon was soon managing first one, then other financial operations — Primerica, Smith Barney, Salomon Brothers. He has been running banks ever since.

Like the mechanic who grew up in a body shop, Dimon today is intimately familiar with the details of his trade. Jack Welch, the retired chief executive of General Electric, says that Dimon stands out from the many other chief executives of banks he worked with. “Most banking executives get into a trading thing, and they don’t know a lot about other aspects of the bank,” Welch says. But Dimon does.

Ever since the late 1980s, Wall Street has been seized by repeated market meltdowns, often involving complex securities that have raised the broader question of whether America’s financial industry is truly benefiting the public. Dimon has lived through every such crisis of the past decade — from Russia’s debt default in 1998 to the broad collapse in 2008. And while the leadership of Wall Street has lately resembled a revolving door, Dimon emerged with his reputation intact and even enhanced.

That he manages to be the exception to the rule is a credit to his radar for trouble. Judy, his wife, whom he met at Harvard, claims he has an instinct for danger. Jay Fishman, who worked with Dimon in the ’90s (today he is chief executive of Travelers), says: “Jamie has a healthy regard for the idea that we will go through crises and that we will be lousy at predicting them. The flip side is he will run his businesses more carefully.” In the early ’90s, when banks were racking up huge losses in commercial real estate, Dimon ordered Fishman to study what would happen to Primerica if Citibank should fail. It was the sort of far-fetched risk that no other banker would worry about. A few years later, Primerica acquired Travelers, which had been weakened by Hurricane Andrew. Dimon demanded to see the catastrophe risk in every region the firm covered. Dimon did not have day-to-day control over insurance, but he routinely trespassed over organizational charts. He told Fishman to limit his exposure so that even a once-in-a-­century storm would not cost the company more than a single quarter’s earnings. That was a highly unusual, and unusually conservative, approach.

THIS FALL, DIMON SPOKE at a conference sponsored by Barclays Capital: a thousand people crammed into the ballroom at a Manhattan Sheraton to hear him. The master of ceremonies began by noting that Dimon was also the lunchtime speaker at the conference in 2006, just before the mortgage bubble burst. It was interesting to recall, he said, who else spoke then: Kerry Killinger, the chief executive of Washington Mutual; Michael Perry, chairman of IndyMac; as well as executives from the subprime lender Countrywide Financial and Lehman Brothers. “Jamie told us that day about subprime exposure — his was the first major bank to talk about that,” the master of ceremonies said. “All of those other firms disappeared.”

Dimon, without so much as an introductory remark or joke, launched into a 45-minute fusillade on the “massive issues,” both regulatory and economic, facing J. P. Morgan. Dimon’s staff had asked him to tone down his political jibes, but he couldn’t resist showing a slide in which the new regulatory authorities created by Dodd-Frank appear as hopelessly tangled as strands in a bowl of spaghetti.

As the audience of investors was aware, Americans are in a downsizing mode; instead of taking out new loans, they are repaying debts incurred during the bubble. At J. P. Morgan and other banks, revenues have been steadily shrinking. Regulatory pressures are intensifying. Dimon, in other words, has reached the top at a moment when growth opportunities appear dimmer than they have in years.

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Credit"House of Cards," by James Joyce

One area Dimon is excited about is credit cards. J. P. Morgan is promoting a couple of Chase-branded cards, with the aim of cutting out partners like Starbucks. But Dimon laments that people — he means the Congress — don’t really understand the credit-card business. Last year, Congress enacted a law that restricted pricing flexibility — for instance, banks must give a 45-day notice before raising their rates, even when a borrower misses a payment. The legislation was meant to prevent sudden interest-rate increases that had caught cardholders unawares.

Dimon argues that all businesses charge for some things and not for others. For instance, restaurants give you the tablecloth and the silverware free and “mark up” the food. (Dimon loves to illustrate banking verities with examples from more familiar, and less threatening, industries.) Credit-card companies provide a service — convenience — “free,” but the business entails significant risks. In a typical month, Chase lends $140 billion to people, with no form of security. The bank earns interest on those loans, of course, but it has to pay expenses and eat the bills of cardholders who fail to pay them back. Before the bust, unpaid bills totaled roughly $6 billion; in 2009, when unemployment rose to double digits, credit-card losses soared to $18 billion, and the business plunged into the red. How to set rates that keep such a business both profitable and an attractive proposition for customers is what bankers do — or at least, what they try to do.

To compensate for its inability to quickly raise rates, Chase has decided to lessen its exposure by no longer offering cards to a portion of its customers that it deems the riskiest. This isn’t necessarily bad; if the mortgage mess taught us anything, it is that banks should exercise discipline. Dimon is also protecting his firm by raising fees in areas that the law doesn’t reach. Free checking is on its way out. “Because you can’t charge for some things,” Dimon rattled on at the Sheraton, “you have to charge for others. When the government gets involved in pricing, I don’t think it’s the right way to look at a business.”

There is another way to see it: that absent government regulation, a contract between an individual borrower and a global bank is apt to be a lopsided affair, because of the parties’ grossly unequal information. The imbroglio over debit-card fees is a case in point. Before Congress acted, banks were raking in overdraft fees. “It got to be too much,” Dimon acknowledged to me later. “People have a $2 cup of coffee, and they got a $34 fee, three times a day.” Banks now have to solicit permission from customers before letting them overdraw. Bank of America is not, as a rule, permitting debit-card customers to overdraw, in effect protecting customers from themselves. J. P. Morgan, taking a less paternalistic approach, is seeking its customers’ permission. “People should have a choice,” Dimon says. The logic is, if you are waiting in line at Target to pay for a digital camera and are $20 short, you might want the ability to overdraw. From society’s standpoint, there is a tension: at what point do we want banks to stop serving us drinks?

Chase pushed its patrons hard; its letter soliciting overdraft rights fairly screamed (in red ink), “Your debit card may not work the same way anymore . . . unless we hear from you.” The Consumers Union, based in Washington, objected to its alarmist tone. Dimon agreed that the letter was “obnoxious.” While still seeking overdraft permission, he pulled the letter. J. P. Morgan is showing some leniency with other fees; the bank is no longer zinging customers for overdrafts of less than $5. Dimon says these changes are good; it is doubtful they would have occurred had activists not raised a stink. This is also an argument for the financial-consumer agency that Dimon opposed.

DIMON’S LIFE IS WORK and family (he has three 20-something daughters). On weekends, he consumes a mountain of printed material; he arrives on Monday with a penned list of questions for subordinates (he carries the list in his breast pocket, crossing off items as he grabs people in the hallways). He regularly grills the executives in J. P. Morgan’s six business units over every possible contingency; he personally monitors the bank’s largest credit and trading exposures. Though Dimon seemingly meddles in every detail, he relies on his lieutenants and lets them push back. “It’s not a one-man band,” says John Hogan, the head risk manager of the company’s investment bank. “It’s a discussion. He listens; he probes.”

Hogan’s comment notwithstanding, Dimon is a famously bad listener. He interrupts and finishes people’s sentences. At a recent off-site meeting, he was so domineering that one of his partners complained, “Jamie, you’re not allowing any give and take.” Dimon backed off. J. P. Morgan is far more of a team-run organization than his cult status might suggest, and it’s not uncommon to see executives shouting around a table. On a recent Monday, Dimon convened the leaders of Chase’s retail bank — the one that is stuffed with nonperforming mortgages. The corporate headquarters, a skyscraper rising from Park Avenue, was suffused in a misty gloom. The executives discussed one positive sign — an apparent tapering off of new delinquencies. For Chase as for other banks, however, mortgage problems will not go away. Dimon got an update on efforts by Fannie Mae and Freddie Mac to force the banks to buy back billions in faulty mortgages; the two agencies, which buy the bulk of mortgages in this country, say the banks offloaded loans that were not up to the agencies’ standards. It’s a serious concern, and Chase, which is contesting some of their claims, has set aside $3 billion (equal to 3 percent of its revenue) to cover possible losses.

Nationwide, more than four million mortgages are seriously delinquent — a staggering number. In their eagerness to unload such loans, banks have rushed to foreclose, submitting many thousands of improper affidavits. Plaintiffs’ lawyers have called for a halt to the process, and Chase has suspended 115,000 foreclosures. Dimon acknowledged to me that in Chase affidavits, individuals incorrectly said they had reviewed loan files when in fact they relied on the work of others. So far, he says, Chase has not found cases of homes foreclosed on in error; payments on its suspended foreclosures are, on average, 15 months overdue.

The states are investigating. Tom Miller, the Iowa attorney general, who is leading a 50-state inquiry, says banks should follow the letter of the law; the point of requiring proper affidavits, he notes, is to ensure that banks bent on foreclosing submit reliable evidence to the courts. He also has a broader purpose. “What we do feel,” Miller says, “is that the mortgage-servicing companies should do a better job on reaching modifications. When a homeowner can make a payment, everybody wins.”

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Credit
Fernando Bryce

Like Miller, many people wonder why banks don’t simply renegotiate the terms. Chase and other banks have been sued for not modifying loans quickly enough under a government program intended to ease the crisis. People at Chase say they are working full speed, but the program is nightmarishly complex. Since the start of 2009, Chase has agreed to modify 272,000 mortgages, about half of which are processed through government programs. Over the same span, Chase has foreclosed on 224,000 homes. Foreclosure is not an optimal outcome for lenders, but nor is it in their interest to grant universal forgiveness. Chase, for instance, does not want to modify loans of borrowers who are hopelessly behind and would most likely default even with a modification.

One area where it sees an opportunity is among homeowners who are current on payments, but might be tempted to walk because their mortgage debt is significantly higher than their property is worth. At the Monday meeting I attended, Ravi Shankar, a senior executive in Chase’s mortgage business, described a new program to modify a batch of particularly bad loans that Chase inherited from Washington Mutual. The WaMu loans were due to “reset” to roughly twice their current interest rate, at which point many of the borrowers would probably default.

Shankar’s unit had reduced the principal on billions of dollars of these mortgages by about a sixth, bringing them in line with market value. Dimon snapped, “I wouldn’t do modifications on investment properties.” People who bought real estate as a speculation are a sore spot with Dimon. They have defaulted at epidemic rates — many after fraudulently claiming to be purchasing a primary residence. (One asked Chase for modifications on nine different loans.) Shankar responded that the program has been offering modifications to investors. “Well I hope you chose the right people, Shankar” — Dimon’s tone was jocular but edgy. Armed with statistics, Shankar reported that, so far, the program was succeeding in reducing foreclosures. The numbers seemed to bring Dimon on board, and he exclaimed, “We should try aggressively to do as much as we can for these folks.”

Later, we went to Dimon’s office to talk. He sat in an armchair next to a freestanding globe, with a view looking northeast over the Manhattan skyline. Dimon ruefully observed that the optimal way to deal with delinquent loans would be to evaluate customers one at a time — the way the bygone corner banker did when a borrower got sick or lost his job. Of course, corner banks disappeared when conglomerateurs like Dimon acquired them. But it’s important to remember that the mass production of mortgages was welcomed early in the decade, because it allowed more people to get credit. Society wants banks to make loans, only not with such improvidence that large numbers of borrowers end up defaulting. There is, again, a tension between these goals; and when mortgage shops were converted to factories, banks lost sight of how to manage it. “This is way beyond the capacity of the machine,” Dimon admitted.

AT 54, DIMON REMAINS TRIM, and though his hair is salt and peppery, there is something boyish — a puckish, faintly suppressed grin — in his manner. He speaks hurriedly, almost garbling the words, clutching a coffee cup while jabbing the air with his free hand. Colleagues marvel at his accessibility and his seemingly perfect recall. “You go in his office, there is almost nothing on his desk,” says Steve Black, a longtime colleague. “He reads it and remembers.”

I first met Dimon 12 years ago, after Sanford Weill merged his growing financial empire into Citigroup. Dimon was the heir apparent, and to the outside world, the two had a perfect partnership. Weill masterminded the deals, and Dimon performed the intensive labor of managing people and evaluating risks. But under the surface, their relationship was strained. Weill was insecure about Dimon’s growing assertiveness; Dimon was a restless No. 2. Once, when Dimon was in high school, his twin recalled, a math teacher chewed out the class, wrapping up his tirade with a rhetorical, “Does anyone have a problem with that?” Jamie raised his hand and said, “I do” and was promptly booted out. Chafing under Weill’s ego, he acted out again. Late in 1998, Weill fired him.

Dimon handled his dismissal without noticeable bitterness. He spent more time with his family, read more books (he tends toward biographies of statesmen) and took boxing lessons. He also experienced an epiphany. On the day he was fired, leaving the building for the last time, he ran into Guy Moszkowski, a securities analyst, in the lobby.

Moszkowski asked what Dimon, then 42, would do next. “I don’t know,” Dimon replied. “I’m going to take my time. But I’m never going to work for anyone else again.”

Sixteen months later, in the spring of 2000, Dimon took the top job at Bank One, a troubled Chicago bank that was operating in the red. It also had a cultural problem; following a merger of two rival organizations, it had never melded into a cohesive entity. This was symbolized by its unwieldy, 22-person board. Dimon trimmed the board to 14 members. Then he asked the board to cut the dividend, further challenging the directors, whose constituents (shareholders) wanted the income. Dimon said strengthening the bank’s capital came first. Next he fired hundreds of consultants. Then he gathered the senior managers and told them nobody (himself included) was getting a bonus.

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Credit"Too Big to Fail," by Chris Dent

By 2003, he had turned the bank around. The following spring, he merged Bank One with JPMorgan Chase, a storied bank that had been hurt by Enron and other fiascoes. It was also troubled by the poor cohesion of various mergers. The simmering rivalries between their former staffs were so intense that traders were known to sabotage one another by withholding data. Dimon, who was president of the combined bank and became chief executive after 18 months, went around telling people they were overpaid. Once again he slashed bonuses. His style was harsh but effective. One manager described him as “shockingly direct.” Lieutenants told me that he made decisions on the merits and was committed to the success of the whole bank, rather than to one faction or another. For a company torn by politics, it was refreshing.

When Dimon arrived at J. P. Morgan, Bill Winters, the co-head of the investment bank, had heard that Dimon viewed derivatives trading as excessively risky. Winters confronted him, and Dimon responded that he didn’t understand derivatives well enough to have an opinion. Winters took him to school. “It got quite detailed — long-dated currency options and so on,” Winters recalled. “He was the only C.E.O. I ever worked for who did that.”

Dimon inculcated a culture of risk-control by preaching accountability. His point in firing consultants was that employees, not outsiders, should be responsible for the bank.

Dimon has a reputation as a cost cutter; it’s a term he hates and one that obscures his protective feeling toward the organization. Linda Bammann, who served a stint as deputy chief risk officer, recalls that when he hired her, he took her to dinner and said: “Every single person in this firm is our responsibility. If we ever have to lay people off, it’s because we haven’t done a good job.” No one would call Dimon cuddly: he is profane, snappish and sparing with praise. What comes through, according to a large sampling of colleagues, is his passion for the organization. His wife’s word for him is “maternal.”

Dimon’s mantra is “Do the right thing.” That might sound like a corporate bromide, but it informs his view of how to run the company, from dealing with problems directly to trying to make gay employees at his firm feel comfortable. Dimon seems incapable of stifling unpleasant news; this translates, at a corporate level, to a rare emphasis on transparency. In a company aiming for interbusiness synergies, openness has strategic value. Unlike in the pre-Dimon days, heads of the various units share their numbers. Openness also works as a sort of spiritual glue. Mike Cavanagh, who worked for Dimon in the early ’90s, jumped ship from Citigroup to join him at Bank One and today runs a J. P. Morgan business that caters to institutional clients, says Dimon “can’t help but tell the truth.” Though executives would like to see Dimon develop a little humility, colleagues speak of him with uncommon loyalty.

DURING THE MORTGAGE DEBACLE, Dimon’s reputation for averting risk suffered a hit. Oddly, the executive who worried about 100-year storms failed to challenge the industry models on home defaults. Many banks, including Chase, issued “stated-income loans” on which applicants were not required to document their income. Some mortgage brokers clearly encouraged borrowers to lie. Dimon says he thought Chase had enough information, electronically, to police such loans. “We didn’t anticipate the lying,” Dimon says, harping on a familiar theme — that bankers were not the only ones at fault. The blame for lying may have been his customers’, but the responsibility is Dimon’s. As Warren Buffett once observed: every bank is offered bad loans; it is the banker’s job to reject them. At Bank One, Dimon had ceased buying mortgages from outside brokers because their performance was poor. At Chase, he bought them. When I asked why, Dimon said underlings convinced him they were exercising proper caution, adding, “It was a huge business, packaging and selling [the loans] to Fannie Mae.” Turning silent, Dimon rotated his palms face up — as if nothing could excuse his error. “I bought that crap,” he concluded.

J. P. Morgan was also too blasé in extending credit to private-equity buyers. Dimon got several things right, however. He nixed the most aggressive type of mortgages, known as option ARMs, on which borrowers were hooked on an initial low teaser rate. He kept the bank’s capital position strong. He did not go overboard on short-term debt (a cheap source of financing, but one that can render a bank vulnerable in a panic). And he was wary of the now-infamous packages of mortgage securities known as collateralized debt obligations, or C.D.O.’s. Winters and Steve Black, who jointly ran the investment bank, didn’t think the risks of C.D.O.’s were worth it, and kept the portfolio small. This meant forgoing big profits, and Dimon invited Winters and Black to a dinner of the board to explain in detail JPMorgan Chase’s reluctance to follow its peers — a typically Dimon bit of leveling with his board. Executives say the collaboration between Chase (which issued mortgages) and J. P. Morgan (which traded them) prompted the company to reduce its risk faster than others.

In August 2006, Dimon learned that default rates on brokered mortgages were worrisomely rising. He ordered a study of the bank’s exposure and tightened its loan criteria. At the time, the subprime craze was going full blast. In his annual letter to shareholders, published early in 2007, Dimon warned that the favorable credit environment was coming to an end and investors should brace for a downturn. Annual letters are generally exercises in spin control written by staff members; Dimon writes his own. Not satisfied with a generalized warning, he specified how much JPMorgan Chase could lose if the boom times ended. By contrast, Citigroup’s chief executive, Charles Prince, devoted all of three sentences to the credit outlook in his annual letter, in which he forecast “moderate deterioration.”

The next year, in a strikingly self-critical missive, Dimon admitted he had underestimated the severity of the crisis. “We still found ourselves having to tighten our underwriting of subprime mortgage loans six times through the end of 2007,” he wrote. “Yes, this means our standards were not tough enough the first five times.” Prophetically, he warned of a “panic” if mortgage investors should sell in unison.

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Credit"There Goes the Neighborhood — Vermilion No. 2," by Lisa Dahl

Shortly after he wrote those words, the government implored him to rescue Bear Stearns, which was experiencing just such a panic. Dimon concluded that the risks were too great and turned the government down. When Timothy Geithner, then head of the New York Fed, persisted, Dimon asked for a federal backstop, and the deal went ahead with government assistance.

Bear Stearns modestly added to J. P. Morgan’s franchise (Dimon says he was largely motivated by a desire to ease the crisis). More significant was the purchase of Washington Mutual, the country’s biggest savings and loan, which Dimon picked up at a fire-sale price after the government seized it in September 2008.

He also prepared for the worst. Around the time Lehman failed, Dimon began holding three daily risk meetings to monitor J. P. Morgan’s exposure. Meanwhile, he mapped out a plan to withstand a surge in unemployment. “We could have handled 15 percent,” he told me. If total disaster struck, he figured he could lay off 45,000 of his 233,000 employees, cease all marketing and slash pay. “We would have survived,” he insists. The market ratified that verdict: as depositors fled from weaker banks, J. P. Morgan took in an additional $180 billion.

A turning point in Dimon’s collaboration with the federal government arrived in October, when Henry Paulson, the Treasury secretary, summoned nine chief executives and told them that the Troubled Asset Relief Program would be used to invest directly in their banks. Dimon told his board that J. P. Morgan did not need the capital and didn’t see any benefit in taking it. (It did benefit from another government program, which guaranteed banks’ debt issues, and thus secured them a lower interest rate.) Under pressure from Paulson, Dimon reluctantly accepted the TARP. Again, he says he believed he was acting for the country’s good.

TARP became a symbol of bailout policy gone awry. Actually, the program has succeeded for banks and, thus far, for the government. Taxpayers earned $795 million on the J. P. Morgan stake. Dimon is upset that people think he was bailed out. But there is at least some truth to the view of Christina Romer, a former economist for President Obama, who notes that Dimon “was part of the system that gave rise to the crisis. He certainly benefited. If the system went south, he’d have gone south with everybody else.”

A LIFELONG DEMOCRAT, Dimon supported Obama in 2008. After the election, he wrote thoughtfully on financial reform. His suggestions were not the stuff of a banking apologist; arguing that the system of bundling mortgages into securities had to be revamped, he wrote to shareholders, “We cannot rely on market discipline alone to fix this problem.” He expounded on the need for “health care coverage for all,” infrastructure spending and energy innovation — with a few tweaks, it could have been an Obama stump speech. Presumably, Dimon figured Washington would at least listen. But as public ire against bankers mounted, word came back that the White House wasn’t interested in Dimon’s ideas: bankers were part of the problem, not the fix.

Late last year, he was due to visit the White House with a group of chief executives. The day before, “60 Minutes” broadcast an interview with Obama in which he referred derisively to “fat cat” bankers. To Dimon, who earned $16 million for 2009 — all but $1 million of it in long-term stock incentives — the slap was the sort of broad-brush slur he was hearing too much of on all sides. He reminded the president: “President Lincoln could have denigrated all Southerners. He didn’t.”

Judy Dimon says the crisis took a toll on him. He used to stand up to bullies who threatened his smaller twin; now he felt as if he, and bankers in general, were being bullied. There is a picture in the Dimons’ Park Avenue home of James Dean in a sidelong pose and a leather jacket; it reminds Judy Dimon of the contrarian business-school student who also wore black leather and seemed, even as he raced up the corporate ladder, not quite establishment. Jamie Dimon, of course, is a rebel with a very pinstriped cause. I saw him entertaining corporate clients over dinner, rousing his guests to “fight for what you believe in” in Washington, meaning turning back the tide of what he regards as ill-considered regulation. During the Dodd-Frank debates, he argued with a U.S. senator, and later, during a family dinner at the Four Seasons restaurant, he spoiled the family’s night out by ripping into a politician who innocently wandered by his table. He seems to not quite connect the backlash against bankers to the deep recession that Wall Street did in fact trigger.

Dimon does not dispute that mortgage lenders and investment banks deserve a lot of the blame. But regulatory lapses and excess leverage throughout the system, he says, contributed as well. What gets him riled is his sense that Washington is captive to a binary, us-against-them environment in which bankers are cast as villains. Perhaps naïvely, he was disappointed that political concerns played a large role in shaping the legislation. (An example is that Dodd-Frank limited bank investment in hedge funds, even though the latter were peripheral to the crisis.) In contrast, Dimon admires the approach of the members of the Basel Committee, the international regulators who are imposing heightened capital requirements, because they are asking the questions that, in theory, bankers ask of themselves: how much capital do banks need to withstand the inevitable downturn, and what is an acceptable level of risk?

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Weekly JPMorgan Chase stock price, from June 2007 to present

Although he supports most of Dodd-Frank, Dimon says he wishes Congress had thought more deeply about the role that big banks — and big corporations generally — play in society. Unprompted, he declared, “There is a huge misunderstanding on how the economy works, how Main Street and Wall Street work.” They aren’t at odds, Dimon was saying; Wall Street intersects with Main Street. “A lot of jobs are created in small businesses, but what drives them is capital expenditures. When Caterpillar builds a plant,” Dimon continued, mentioning a big J. P. Morgan client, “that’s good for jobs. And not just jobs. These big companies lead the way in philanthropy, in having diverse work forces. Yet we act like they’re some bad thing.” Now worked up, he launched into a defense of his values. “Do I want everyone to have access to universal health care? Yes. Do I want inner-city kids to graduate from schools? Yes. Personally, I don’t mind paying higher taxes. But don’t mess up the machine that creates the value so you can do these things. This economy is what gave us everything.”

Since the financial crisis, Dimon has asserted that it’s the interconnectedness of markets — the tendency of investors to flee from one vulnerable asset class and then another — rather than the size of banks that presents the greatest systemic threat. Banking in the United States, he notes, remains far less concentrated than in just about every other developed nation. As he wrote in one of his sermonlike shareholder letters: “This is not your grandfather’s economy. The role of banks in the capital markets has changed considerably.” He means that banks, once the principal source of loans for America, today supply less than a third of the total credit. The rest comes from bond investors, money-market funds, mutual funds. These new or expanded capital markets, Dimon says, have converted formerly long-term assets (think mortgages) into liquid securities that can be sold in an eye blink. And it was those securities that were the main source of panic in 2008.

Of course, once the panic started, several of J. P. Morgan’s rival investment banks did suffer a run, and while Dimon is correct that these episodes differed from the 1930s-style bank runs, it’s not unlikely that if another crisis occurs, regulators will be tempted to rescue the biggest banks again. The new “systemic regulator” that the Dodd-Frank act established is meant to unwind a failing institution without rewarding its creditors or investors. Dimon is a huge supporter of the concept. “No one should be too big to fail,” he tells me. And J. P. Morgan? “Right,” he says. “Morgan should have to file for bankruptcy.” Suddenly, he begins to scratch out how a putative bankruptcy of his company would look, dissecting the capital structure line by line.

Ben Bernanke, the Federal Reserve chairman, recently predicted that the banking behemoths will most likely break up over time. Bernanke has considerable clout, because the Federal Reserve has yet to enact capital rules for the very big banks; conceivably, the Fed could make it too costly for them to stay big. Even if it doesn’t, banks are forbidden to acquire more than 10 percent of the total of deposits. Since J. P. Morgan is already over 9 percent, Dimon has probably cut his last deal, at least within U.S. borders.

That is one reason he is focusing overseas. Last year, J. P. Morgan financed the acquisition by Kirin, the Japanese brewer, of a beer company in Australia as well as a Brazilian purchase of a steel company in the United States. It will have to do more such deals to get the international share of its corporate business to half from its current 30 percent. At home, Dimon is personally more involved in winning business (he courted General Motors’ federal overseers to become the co-lead in underwriting G.M.’s stock sale). He is likely to play that role overseas, as well. He appointed Tony Blair, the former British prime minister, as senior adviser to the bank, and Dimon personally visited Africa, China, India and Russia this year; he saw Vladimir Putin at Putin’s summer residence and returned impressed by his knowledge of global business (he has not said anything so flattering with respect to Obama).

Noting Dimon’s global emphasis, Simon Johnson, the Dimon critic and a former International Monetary Fund economist, wrote in The New Republic that J. P. Morgan is becoming too global to fail — and that this is dangerous for society. He argues that, notwithstanding the intentions of Dodd-Frank, supersize banks could be bailed out again, because the world economy is becoming dependent on them. Though this is hypothesis, big institutions do wield political clout, and this is a potential drawback of size. Dimon’s point is that Asia and Europe are host to a growing portion of the world’s financial giants; for competitive, if not for patriotic reasons, America needs its share. Alan Blinder, a former Fed vice chairman, may be right when he says that in today’s economy, it is time to get over Jacksonian fears of bigness. “It’s a romantic notion to say we are going back to an era when all banks were small,” Blinder says.

Historically, the biggest enemy of big banks hasn’t been government rule-making but rather missteps by banks. Citigroup’s expansionist vision was derailed when it overlooked the risks in collateralized debt obligations and, more essentially, when Weill, who retired as chief executive in 2003, failed to name a capable successor. Although Dimon could remain at J. P. Morgan for another decade — he says he has forsaken any thought of public service — J. P. Morgan’s enormous heft gives the public more than a passing interest in what and who comes next. Board members consider it an active concern. “When you have a guy as skilled as Jamie, you have to be sure that the bank is not just Jamie — that you have a team,” a director told me.

The issue flared into the open in 2009 when the investment bank became torn by a bitter disagreement between its co-chiefs, Winters and Black. Dimon became convinced that Winters, with whom his own relationship was strained, would not be his successor. Black was older than Dimon and out of the running. Dimon was especially alarmed by the feuding because he views the investment bank as an arena for grooming the next chief executive. Late last year, he fired Winters and moved Black, formerly one of his closest confidants, out of a key role. (Black, who was deeply wounded, subsequently announced his resignation. He still calls Dimon “a terrific leader.”) Alluding obliquely to the turmoil in his annual letter, Dimon wrote that “poor C.E.O. succession has destroyed many a company.” With Winters and Black in mind — or was it himself and Weill? — he vowed to avoid “a psychological drama or a Shakespearean tragedy.”

WHILE J. P. MORGAN’S management is considered strong, the disruption was a reminder that banks can go bad in a hurry. And Dimon has yet to fulfill one of the primary tasks he was hired for: to generate enduring wealth for shareholders. Since he arrived at J. P. Morgan, in 2004, the company’s stock is flat, a dispiriting result that the directors surely didn’t anticipate. His achievement can be measured in terms of the trouble he avoided — the average bank stock, over that time, is down by half.

One of his Morgan colleagues says that for Dimon to go down as, possibly, the best chief executive of his era, he has to get the stock up and also raise the bank’s profitability. Dimon would like to see such gains, of course, but he manages with a sense of fatalism that discourages the setting of precise targets. The very role of banks in the future — will they prosper as more regulated entities or give ground to less controlled nonbanks? — is murky. Dimon is no futurologist; he is more comfortable talking about the blocking and tackling of the business, his hope to execute better, to lower costs. When I ask about his ambition, he says he wants to make the business more vibrant for customers and employees, which should lead to more homes financed and jobs created. If he can manage that, he will feel that he served his shareholders and, in a way, served the country, too.

It has been a while, of course, since a banker dared to speak of his trade as a public service. Too many homes have been lost; too much illusory equity disappeared into the smoke and mirrors of the bust. Dimon is not some corner lender; he runs a vast bank. Throughout American history, the financiers who ran such giants have been, variously, lionized as builders and disdained as captains of a privileged class. Dimon would have little patience for such sweeping clichés. His recipe for restoring his industry’s reputation is prosaic: “You do the right thing every day, or try to. There will be mistakes — you correct them.”

Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer and the author of “The End of Wall Street.”

A version of this article appears in print on December 5, 2010, on page MM34 of the Sunday Magazine with the headline: The Stress-Testing of Jamie Dimon. Today's Paper|Subscribe